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likely to be laid off。
。 Frictional unemployment： This is the result of an economy or geographic
area within an economy moving from one type of productive
activity to another。 The shi。。 from employment in coal and steel mining
to other forms of employment； usually in the service sector； is one such
shi。。 that Western economies have experienced。
。 Structural unemployment： This is caused by workers not having the
skills and businesses not having the technology to meet new demands
being made on an economy。
。 Vacancy rate： This measures the number of unfilled jobs at any one
time。 A high level of unemployment can be partially offset against
lots of vacancies； as people take time to move from one job to another；
particularly if that requires moving home。
Economics 211
One further measure a government can take to influence unemployment
is to import labour； either through immigration or by accepting seasonal
workers from overseas。
The exchange rate
The rate at which different currencies are traded is their exchange rate； with
a high rate being viewed as a sign of economic virility。 So…called strong
rates of exchange mean that citizens and businesses find foreign goods
and services relatively cheap。 Unfortunately； it also means that foreigners
find their goods and services expensive and will buy less and seek new
suppliers in countries with more favourable exchange rates。
Most countries have their own currency； but not all governments pursue
the same exchange rate policies and each such policy involves different
costs and risks：
。 Managed and ‘not fully convertible’ is when the government exercises
political and economic control over the exchange rate and the amount of
its currency that can be moved in or out of the country。 China and India
are among many countries that fall into this category。 Such constraints
can mean that a currency drops sharply in value periodically as the
government of the day tries to hold back international pressures。
。 Pegged： For the majority of countries which have been anxiously
seeking ways to promote economic stability and their own prosperity；
the most favourable way has been to peg the local currency to a major
convertible currency； such as the euro or US dollar。 This means that
while the local currency may move up and down against all other world
currencies； it will remain or at least a。。empt to remain stable against the
one it is pegged against。 In total； 22 states and territories have a national
currency that is directly pegged to the euro； including 14 West African
countries； 3 French Pacific territories； 2 African island countries and 3
Balkan countries。
。 Dollarized： This is a slight misnomer as the term is used to describe a
country that abandons its own currency and adopts the exclusive use
of the US dollar or another major international currency； such as the
euro。 The euro； for example； is the official currency in 15 states and
territories outside the European Union。 In such cases the country in
question takes on the risks and costs associated with the ‘host’ currency。
Many of the economies opting for this approach already informally use
the foreign currency in private and public transactions。
。 Floating and ‘fully convertible’： These currencies fluctuate as the
country in question succeeds or fails。 Russia； for example； li。。ed currency
controls in July 2006 as a sign of economic confidence； making the
rouble fully convertible。 Now it is more a。。ractive to invest in Russia；
212 The Thirty…Day MBA
while Russian businesses can freely； without worry； without any special
permit or burden； participate in investments overseas。 Barely 8 years
earlier the country defaulted on its massive domestic debt； devalued
its currency and wiped out Russians’ savings。 Russia’s macroeconomic
situation had to bee stable to allow this to happen； which has been
achieved on the back of large gold reserves； a balanced budget and
foreign investment that exceeded capital outflows largely on the basis
of oil and gas exploration activity。
Balance of payments
The balance of payments is the difference between all payments ing
into a country and those going out。 A surplus of payments ing in over
those going out is said to be favourable and the opposite is unfavourable。
The balance of payments is divided into two accounts： the current account；
such as payments for imports； exports； services and transfers of money；
and capital account payments for physical and financial assets。
The balance of trade； which is itself a major part of the overall balance
of payments； is the difference between the value of goods and services exported
out of a country and those imported into the country。 When imports
exceed exports a country’s GDP is reduced by that amount （see GDP
earlier in this chapter）。 Imports and exports are themselves influenced by a
country’s petitive position； which can be eroded by too high an inflation
rate； for example； or by having too strong a currency； which encourages
overseas purchases of goods and services； including holidays。
Entrepreneurship
。 Entrepreneur vs intrapreneur
。 Social entrepreneurs
。 Creative destruction； the spur
。 Why we need entrepreneurs
。 Money for business plans
Entrepreneurship is the newest discipline in the business school armoury
and in many schools the subject is still not taught。 In some it is a topic
within economics； which is considered appropriate as J B Say； a French
economist in circa 1800； first coined the term entrepreneur； using it to
describe ‘Someone who shi。。s resources out of an area of lower and into an
area of higher productivity and greater yield’。 The most mon practice is
to reduce the subject to a basic ‘start your own business’ project culminating
in a business plan presentation； with a handful of MBAs going the whole
hog and launching a venture。
There is rather more to the subject than just starting a business； though
that in itself is a worthy oute。 Governments are fixated with entrepreneurship；
secondary schools are teaching it； 1 in 15 people in work
runs a business and over half the world work for and report directly to an
entrepreneur。
WHY ENTREPRENEURSHIP MATTERS
You might be surprised at the number of people and organizations that
appear keen to give entrepreneurs a helping hand。 Dragons’ Den panellists；
bankers and government ministers all seem eager to lend a helping hand。
None of these would…be helpers is particularly altruistic。 The primary
reasons why entrepreneurs are essential are as follows。
8
214 The Thirty…Day MBA
Job creation
Governments needs a constant injection of new businesses as they create
most of the new jobs in any economy； a fact uncovered by David Birch； a
researcher at MIT （Massachuse。。s Institute of Technology） back in 1979 （The
Job Generation Process； MIT）； and corroborated by dozens of other studies
since then。 Also； of course； you will pay tax on your profits and bee
an unpaid tax collector for VAT or Sales Tax on behalf of government
agencies。
Creative destruction and the innovative spur
Creative destruction is a term a。。ributed to Joseph Schumpeter。 Born in
1883； he became the youngest professor in the Austrian empire at 26 and
finance minister at 36； only to be dismissed a。。er presiding over a period
of hyperinflation。 A brief spell as president of a small Viennese bank was
followed； a。。er its failure； by a return to academia； first in Bonn and then
in 1932 at Harvard。 He is remembered for two books in particular： Theory
of Economic Development （1911）； where he first outlined his thoughts on
entrepreneurship； and Capitalism； Socialism； and Democracy （1942）； where he
detailed how the entrepreneurial process worked and why it ma。。ered。 His
view was that the fundamental impulse that sets and keeps the capitalist
engine in motion es from ‘the new consumers； goods； the new methods
of production or transportation； the new markets； the new forms of
industrial organization that capitalist enterprise creates’。 He pointed out
that entrepreneurs innovate and develop new products； services or ways
of doing business； and in the process destroy those organizations that can’t
adapt or have been effectively made redundant。 Schumpeter believed that
capitalism has to create short…term losers alongside its short… and longterm
winners in order for the economy to grow and prosper： ‘Without
innovations； no entrepreneurs； without entrepreneurial achievement； no
capitalist。 。 。 propulsion。 The atmosphere of industrial revolutions。 。 。 is the
only one in which capitalism can survive。’ He went rather further than
this by arguing that the more countries tried to mitigate the possibilities
of business failing； the worse their economic performance would be。
Picking up the pieces through social insurance is fine； propping up failing
businesses or declining business sectors is not。
WHO MAKE GOOD ENTREPRENEURS？
There are absolutely no reliable characteristics that predispose people to
bee entrepreneurs。 Despite diligent research； Durham University’s
General Enterprise Tendency （GET） Test； with 12 questions measuring
Entrepreneurship 215
need for achievement； 12 to assess internal locus of control； 12 to determine
creativity； 12 to gauge calculated risk taking and 6 to measure need for
autonomy； has failed to gain recognition。 Peter Drucker； the international
business guru； probably got it right with this description： ‘Some are
eccentrics； others painfully correct conformists； some are fat and some are
lean； some are worriers； some relaxed； some drink quite heavily； others
are total abstainers； some are men of great charm and warmth； some have
no more personality than a frozen mackerel。’ Entrepreneurs do have one
distinguishing characteristic in mon； however。 They put independence
and doing their own thing above everything； including ge。。ing rich。 That
doesn’t mean they don’t want to succeed； it’s just that success is not all about
money。 Research carried out by Simfonec； a science research centre based
at Cass Business School （cass。city。ac。uk）； found that 20 per cent of
entrepreneurs in their sample （250 entrepreneurs and 250 managers） were
dyslexic； whereas managers reflected the UK national dyslexia incidence
level of 4 per cent。 While it is perhaps forting to know that dyslexia；
or even not pleting schooling or university because of it； is no bar to
entrepreneurship； it is not something you can do much about。
What can be said with certainty is that there are an awful lot of entrepreneurs
everywhere and from every walk of life。 Also； it seems likely that
entrepreneurs are as likely to be made as born。 There are over 4。4 million
people running their own business in the UK alone。 That is double the
number of just two decades or so ago。 GEM （gemconsortium）；
through their Global Entrepreneurship Monitor research programme
headed up by Babson College in the United States； collects statistics from
41 countries on business starters and； equally importantly； would…be
starters。 They rank the UK as being fairly average in terms of numbers。
GEM’s research indicates that in Europe there are around 30 million
owner…managed businesses and five times that figure across the developed
world。
Research from various organizations； including Lloyds Bank； NatWest
and the Institute for Small Business Enterprise； sheds further light on the
small business population and demographics。 No section of the public
appears to be excluded from the small business world。 One in seven
businesses are started by people over 50； just over a third of business
proprietors are women； 1 in 10 le。。 school early and barely a quarter have
a degree； immigrants are as likely to work for themselves as others； and
interestingly enough； those who start their business in their teens or early
20s are no more likely to fail than those in the 40s and 50s with a career in
big business under their belt。 You can search out these and other related
data on the Small Enterprise Research Team website （serteam。
co。uk）。 Based at the Open University； SERTe